For a while the world was flat. Now it’s upside down.
To understand it, invert your thinking. See the developed world as depending on the developing world, rather than the other way round. Understand that two-thirds of global economic growth last year came from emerging countries, whose economies will expand about 6.7% in 2008, against 1.3% for the US, Japan and Euro zone states.
Brazilian boom: Huge offshore oil finds, a sugarcane ethanol boom, vast reserves of unused arable land, mineral wealth and abundant fresh water have all contributed to Brazil’s buoyancy
The sharp rise in prices for energy, commodities, metals and minerals produced mainly in the developing world explains part of this shift. That has created the balance of payments surpluses fuelling dollar-dripping sovereign wealth funds in countries such as China. They amuse themselves picking up a stake in BP Plc. here, a chunk of Morgan Stanley there, and why not a sliver of Total SA.
We of the developed-world Paleolithic species are fair game for the upstarts now, our predator role exhausted. The US and Europe may soon need all the charity they can get.
To place this inversion in focus, it helps to be in Brazil, where winter (so to speak) arrives with the Northern Hemisphere summer, and economic optimism, as exuberant as the vegetation, increases at the same brisk clip as US foreclosures.
Huge offshore oil finds, a sugarcane ethanol boom, vast reserves of unused arable land, mineral wealth and abundant fresh water contribute to Brazilian buoyancy. But natural resources are only part of the story. As in China and India, an expanding internal market is bolstering growth. So is increasing corporate sophistication and global ambition.
At the annual National Forum, a gathering of business leaders, I felt like a first-world pipsqueak as leaders of the national energy company Petróleo Brasileiro SA, or Petrobas as the company is known, (bigger than BP, Shell and Total) and Companhia Vale do Rio Doce, or CVRD (the world’s second largest mining company), reeled off head-turning statistics.
Petrobras, which has spearheaded Brazil’s push to self-sufficiency from heavy dependence on imported oil 30 years ago, will more than double oil production to 4.2 million barrels a day in 2015 from 1.9 million barrels today.
“With the latest discoveries, the South Atlantic will become a huge oil producer,” predicted Jose Sergio Gabrielli de Azvedo, its chief executive.
Roger Agnelli of CVRD waved away the US (“It’s full of debt”) to focus on the company’s ambitions in Asia. It was imperative to be there, he said, because that’s where growth, capital and ambition are. China, he noted, will account for 55% of iron ore consumption, 31.6% of nickel, and 42% of aluminium by 2012. Case closed.
Like many other big emerging market corporations, CVRD has been on a buying spree. It’s not just sovereign wealth funds that are acquiring first-world companies these days. It’s the new giants of the NAN (newly acquisitive nations).
Emerging market mergers and acquisitions are up 17% this year to $218 billion (about Rs9 trillion), while for the rest of the world they’re down 43% to $991 billion, according toThomson Reuters.
The 2007 Unctad World Investment Report said developing world direct foreign investment (FDI) totalled $193 billion in 2006, compared with a 1990s annual average of $54 billion. The US 2006 figure was $216.6 billion.
CVRD bought Canada’s Vale Inco, a nickel miner, for $17 billion in 2006. It came close to acquiring the Anglo-Swiss miner Xstrata Plc. for $90 billion this year. Just last week, India’s Vedanta Resources Plc. reached a $2.6 billion deal to buy US copper miner Asarco Llc. That deal is being challenged by Grupo Mexico, creating a Latin American-Asian fight for a US company.
If you have trouble getting your mind around that, try standing on your head.
That’s also a good position from which to view India’s Tata Motors Ltd agreeing to buy Land Rover and Jaguar from Ford Motor Co. for $2.3 billion, or Tata Steel Ltd’s acquisition last year of the Anglo-Dutch Corus Group Plc. steel company for $12 billion.
Globalization is now a two-way street; in fact it’s an Indian street with traffic weaving in all directions.
“In an inverted world, not only have developing economies become dominant forces in global exports in the space of a few years, but their companies are becoming major players in the global economy, challenging the incumbents that dominated the international scene in the 20th century,” said Claudio Frischtak, a Brazilian economist and consultant.
A shift in economic power is under way, whose implications the developed world has not grasped. Of course, the G-8 and the permanent membership of the UN Security Council need to be expanded to reflect this change. The 21st century can’t be handled with 20th-century institutions.
That’s obvious. Less obvious is how the US, which underwrites global security at vast expense, begins to share this burden, so that the new multi-polarity of wealth is reflected in a multi-polarity of security commitments.
Headstands are in order for the next US president.
© 2008/INTERNATIONAL HERALD TRIBUNE